Thinking of buying a salvage car? Here's what you need to know

The days of picking up an AutoTrader at 7-Eleven to buy a used
car are long gone. The Internet has revolutionized the world of used-car
buying, making it easier to connect car buyers and sellers through
online marketplaces such as Craigslist and eBay.

But just as the options have expanded for purchasing a used car, the
risks have also grown. It is not uncommon to see a flood of salvage
vehicles for sale online.

But what does it mean when a car is branded as “salvage”? Is it
always a risk, or could there be potential benefits to buying salvage?

What is 'salvage'?
The California Department of Motor Vehicles considers a vehicle
salvage once it has been wrecked, destroyed, or damaged to the extent
that the insurance company considers it uneconomical to repair. For most
insurance companies, this means that if the cost of the repair exceeds
the value of the car, the vehicle is not repaired and the owner is
issued a payout, usually the pre-accident value of the vehicle.

For example, let’s say a 2005 Honda Civic is involved in an accident
and needs $10,000 in repairs. The pre-accident value of the car is
$4,000. In most cases, the insurance company will pay out the
pre-accident value of the car and call it a loss, instead of repairing
the car at $10,000.

In most cases, these vehicles carry a substantial amount of damage
that even after repair can affect the longevity and reliability of the
vehicle.

So how do some salvage vehicles end up back on the market?
Once an insurance company pays out the vehicle owner, the car becomes
property of the insurance company. It registers the vehicle with the
DMV as salvage, receives a salvage certificate and takes it to asalvage yard until the fate of the vehicle is determined.

In most cases, the vehicle is auctioned off and sold to a dealer,
dismantler, rebuilder, scrapper or exporter. While most of these buyers
purchase salvage vehicles solely for parts, some buy them with the
intent to resell to the public.

“It’s not illegal to sell a salvage car, but it is necessary to
inform the buyer that it is indeed a salvage,” says Frank Scafidi,
director of public affairs for the National Insurance Crime Bureau.
According to California Vehicle Code, a seller who fails to make the
disclosure may be subject to a civil suit or penalty.

Registration can be a hassle
It’s one thing for a consumer to buy a salvagevehicle and make all the repairs for it to run. Another hurdle is the DMV registration process.

After buying a salvage car, the owner cannot legally register the
vehicle with the DMV until it passes a set of certifications and
inspections. Along with title and registration application and proof of
ownership, owners have to go through a vehicle inspection with the
California Highway Patrol and a brakes/lights inspection with a licensed
auto professional.

If the car does not pass either inspection, it cannot be registered until the repairs are made.

Even then, it is still possible for titles to be “white-washed,”
illegally altering vehicle documents to get the salvage title brand
removed. These cars are usually moved to other states, become
re-registered and are sold to consumers unaware of the car’s condition.

Scafidi says part of the problem lies in the lack of a comprehensive
national system at the DMV level. Though the Anti Car Theft Act of 1992
enabled the creation of the National Motor Vehicle Title Information
System to prevent such fraud, not all states are participating.

“For some states it’s very cost prohibitive,” says Scafidi. “But once
you buy a car like that there’s a lot of risk. Consumers would be
protected if such legislation is implemented nationwide.”

While there are VIN (Vehicle Identification Number) database services
that can scan whether a vehicle has been involved in an accident, those
services can come at a hefty cost. The NICB does offer a free VIN check,
where car buyers can see whether it is salvage. Other services, such as
Carfax, give a more detailed report on vehicle history for a fee.

Not all salvage cars are bad
The Our Next Car dealership in Downey monitors salvage auto auctions andpays
top dollar for the “best” salvage vehicles available, owner Will
Ramirez says. The dealership makes the necessary restorations and
registers the vehicle with the DMV.

Our Next Car offers a three-month, bumper-to-bumper warranty on all
vehicles. As a result, the dealership is able to give a substantial
discount on a used car. For example, at press time, a 2011 Lexus IS 250 F
Sport with 19,563 miles is going for $18,999 through Our Next Car. The
Kelley Blue Book value of the car is around $40,000.

“There’s a salvage title enigma in the used car marketplace,” says
Ramirez. “Sometimes, these cars might come in slightly damaged, but are
still considered salvage.”

Ramirez says it is possible for cars to be branded as salvage without even being involved in an accident.
“For example, in the case of a fire, even if a car is not directly
exposed to the flames. If some smoke transfers to the paint of the car,
it has to be considered salvage,” says Ramirez.

He says body shops typically charge insurance companies more for
repair services than they would a typical walk-in customer. This might
influence the insurance company’s decision about whether a car should be
considered salvage, leaving many good, repairable cars in the salvage
lot.

“For insurance companies, it’s all a numbers game. They want to
minimize their losses,” says Ramirez. “If it makes more sense for them
financially to salvage the car, they’ll do it. Especially now since
salvage cars go for so much more because of the Internet.”

Ramirez is referring to a new market of international buyers who
scour the Internet, looking for the best salvage deals. Some dealers
travel around the United States, buy the cars at auction and ship them
out internationally. Some salvage auctions sell and ship directly to
international locales.

“In other countries, there’s no such thing as a salvage car,” Ramirez
says. “They get shipped out, they fix them and then they sell them. And
even with all the costs, these dealers profit because they can sell it
for full price.”

Is it worth it to buy a salvage?
David Cavano, manager of the car-buying service at the Automobile
Club of Southern California, does not recommend buying a salvage
vehicle.

“Run, don’t walk when it comes to a salvage title vehicle,” says
Cavano. “It might seem like a good deal until you see how the
maintenance and repair costs add up. You might as well just buy a new
car at that point.”

But Scafidi, of the NICB, says it could very well be worth the cost, if you’re skilled with a wrench.
“If you’re handy with repairs, you can get a pretty decent car for a
minimal investment and it’ll run just fine depending on the damage,”
says Scafidi. “You’ll find a lot of people who intend to buy a salvage
car and they know exactly what to do. Not all salvage transactions are
illegal, unsafe or fraud.”

Say Ramirez, of Our Next Car: “A lot of people are out there on
Craigslist trying to make a quick buck. It’s sketchy and up to luck. If
you’re going to buy a salvage vehicle, make sure it’s properly running,
registered and is coming from a trustworthy source.”

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